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News: Bringing a new legislation for Crypto regulation may not be necessary in India until Cryptocurrency transactions reach a widespread adoption.
Till then, a more prudent approach would be to extend our current regulatory frameworks, along with the associated enforcement apparatus, to regulate cryptos as yet another class of assets.
What are the challenges the Indian Crypto regulation need to address and possible solutions?
The following complexities and challenges need to be addressed by the proposed Crypto regulation:
| Challenges | Possible solutions |
| Money laundering due to anonymity offered by the Cryptocurrencies | mandating cryptocurrency exchanges to carry out customer verification checks Requiring them to retain transaction records for a stipulated period of time. In some jurisdictions, regulators also require exchanges to employ personnel trained to detect suspicious transactions. |
| Taxing Crypto transactions: It is hard to determine how services that have been paid for using cryptocurrencies should be taxed under indirect tax regimes such as GST. | Base the actual tax payable on the fair market value of the cryptocurrency as on the date of payment or receipt. |
| Taxing income from Crypto mining | Given that crypto mining income has no real world equivalent, it might be necessary to amend the tax code so that income earned from this activity is treated as a novel category of income. |
| Regulation of Crypto exchanges | Mandatory registration in India in order to bring them completely within the purview of Indian regulation. Impose licensing obligations on these exchange platforms, so that their continued operations are subject to compliance with specified conditions. |
| Regulation of other crypto assets: Regulating other crypto assets (new kinds of crypto tokens, initial coin offers etc) that have all the characteristics of a security but which operate on a blockchain. | Bringing crypto assets under the ambit of securities regulation Requiring issuers to comply with specific disclosure requirements at the time of issue & abide by insider trading and market manipulation regulations while trading in these crypto assets. |
In light of the above challenges, a much better approach for the government would be to simply amend existing anti-money laundering, taxation and securities regulations to ensure that they additionally cover the cryptocurrencies and assets.
| Must Read: Cryptocurrencies in India: ban or regulation? – Explained, pointwise |
What is the issue with this approach?
This approach leaves out all those transactions through which certain goods and services can be directly purchased using cryptocurrencies.
At present, most governments have chosen to ignore this category of transactions, relying on the fact that these ‘currencies’ are still not widely accepted. Further, most people who want to spend the cryptocurrencies in their possession would have to first convert them into regular fiat currency.
Source: This post is based on the article “How to regulate crypto, minus a crypto-specific law” published in Livemint on 8th Dec 2021.
